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The Tenth District economy expanded solidly in the period from late November
to early January. Holiday retail sales were favorable, factory activity strengthened,
and labor markets improved further. The energy and agriculture sectors also
remained strong. Housing activity slowed slightly but was still high by historical
standards, while commercial real estate markets generally remained weak. Wage
and retail price pressures were still modest, but some price pressures persisted
in manufacturing.
Consumer Spending
Consumer spending during the holiday season was generally characterized as solid.
Most store and mall managers reported favorable year-over-year increases in
holiday sales, with sales above plan at many stores. Overall, store managers
reported that price discounting was similar to a year ago, although a few contacts
said they resorted to heavy promotions to boost sales around Christmas. Sales
of jewelry, other high-end items, and electronics were reported as especially
strong this year. Many gift and specialty stores also reported robust sales.
Apparel sales were somewhat mixed, with some stores reporting sluggish sales
of winter clothing items due to unseasonably warm temperatures in early December.
Inventory levels following the holidays were generally reported as satisfactory.
Virtually all managers expect solid year-over-year sales gains in the near future,
due in part to greater holiday sales of gift cards than a year ago. Motor vehicle
sales in the district were reported as up slightly from the fall but basically
unchanged from a year earlier. Most dealers were satisfied with current inventory
levels and expect solid sales growth in coming months. Travel and tourism activity
during the holidays rose solidly from a year ago. Airport traffic increased
in most district cities, and activity at the Rocky Mountain ski resorts was
strong, with some resorts reporting near-record levels of visitors.
Manufacturing
District manufacturing activity strengthened further. Most manufacturers reported
increased production and orders since the previous survey, and employment continued
to expand at many firms. A number of manufacturers continued to report difficulties
obtaining materials, especially petroleum-based inputs, and expect some modest
material availability problems to persist. Plant managers' expectations for
future production remained strong, and many firms plan to continue to expand
employment heading forward. In addition, many manufacturers expect to increase
their capital spending in 2005, both to replace outdated equipment and to expand
capacity. Among those firms not planning increases in capital spending, a commonly
cited reason was the recent completion of a major capital project.
Real Estate and Construction
Housing activity slowed slightly but remained solid, while commercial real estate
activity was still weak in most areas. Single-family housing starts edged down
in many district cities but were still above last year's high levels. Builders
generally characterized starts of both low-end and high-end homes as solid.
Most builders expect some continued easing in homebuilding in the months ahead,
though construction activity is expected to remain high by historical standards.
Based on reports from real estate agents, home sales compared with recent months
were basically flat for the district as a whole, with some cities reporting
increases and others reporting decreases. Compared to last year's high levels,
home sales were reported as being flat to slightly higher in most areas. Most
mortgage lenders reported a decline in mortgage demand since the previous survey.
Some lenders also noted a shift away from variable rate loans. Lenders generally
expect some decrease in mortgage demand in the months ahead due to an anticipated
further easing in demand for refinancings. Commercial real estate activity in
the district generally remained weak, though some small improvements were reported
in several mid-sized markets. Office vacancy rates edged down except in Denver
and Kansas City, and prices for office space rose slightly in most areas as
well. Most commercial real estate agents expect little significant change in
office conditions in the next few months.
Banking
Bankers report that loans and deposits both edged up since the last survey,
leaving loan-deposit ratios unchanged. Demand rose for commercial and industrial
loans but was generally unchanged for other loan categories. On the deposit
side, large CDs rose, while other types of accounts held steady. All respondent
banks raised their prime lending rates since the last survey, and most banks
also raised their consumer lending rates. Lending standards were generally unchanged.
Energy
District energy activity remained strong. The count of active oil and gas drilling
rigs in the region was basically unchanged from the previous survey and still
well above year-ago levels. Some contacts reported continued constraints on
drilling due to labor and equipment shortages. With oil and gas prices still
high, most drilling companies expect a slight expansion in drilling in the months
ahead and are planning for solid increases in capital spending in 2005. Coal-mining
firms also reported strong output growth in 2004 and anticipate another solid
year in 2005.
Agriculture
Agricultural conditions generally remained strong. The winter wheat
crop was reported to be in good condition across the district. In addition,
preliminary assessments of farm incomes for 2004 indicate they will be up slightly
from the record highs of 2003. Despite the higher incomes, few contacts expect
large increases in capital investment this year because many producers made
such investments last year. In addition, some producers in western parts of
the district are worried that a possible lack of spring moisture could worsen
already dry pasture conditions.
Labor Markets, Wages, and Prices
Wage and retail price pressures remained modest, while price pressures persisted
in manufacturing. Labor markets continued to show improvement, as hiring announcements
again outpaced layoffs. Even so, the percentage of firms reporting difficulties
finding qualified workers remained similar to recent surveys--up considerably
from a year ago but still much lower than five years ago. Worker shortages continued
to be most acute in the energy sector, with one driller hiring rig workers from
overseas in order to expand. Skilled factory workers, such as welders and metal
fabricators, were also reported to be in short supply at some plants. Aside
from these positions, wage pressures were still generally modest across the
district. Most retailers reported flat selling prices compared with the previous
survey and said that holiday discounting was similar to a year ago. Heading
forward, a few retailers expect to raise prices modestly in order to pass on
vendor price increases, but most managers anticipate little change in selling
prices. Builders again reported moderate input price increases, though the increases
were less widespread than in previous surveys. They generally anticipate further
slight price increases heading forward. Many manufacturers continued to report
rising materials costs, though fewer firms than in recent surveys did so. At
the same time, a slightly higher percentage of factories raised their output
prices or expect to do so in the near future.
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Minneapolis